About the company:
With a huge traffic of IPOs hitting Dalal Street lately, investors have another opportunity in line. Car Trade Tech Ltd is coming out with its IPO which is an offer for sale of 1.85 crore equity shares aggregating to Rs. 3,000 crores. The issue opens for subscription on 9th August, 2021 and closes on 11th August, 2021. The price band has been set between Rs. 1,585 and Rs. 1,618 per share for a lot size of 9 shares. Post the issue, the implied market capitalization of the company is expected to stand between Rs. 7,265 and 7,416 crores based on the lower and upper price bands, respectively.
Company Overview:
CarTrade Tech Ltd is a multi-channel auto platform with coverage and presence across vehicle types and value-added services. The company offers a variety of solutions across the automotive transaction value chain for marketing, buying, selling and financing of new and pre-owned cars, two-wheelers as well as pre-owned commercial vehicles and farm and construction equipment.
The company acquired Automotive Exchange Private Limited (CarWale and BikeWale) in 2015 and 55.43 percent of the outstanding equity interest in Shriram Automall India Limited (SAMIL) in 2018 and successfully integrated these businesses.
Here is a snapshot of their key offerings:
| Brands | Product / Service Offerings |
| CarWale and CarTrade | Platforms to connect car shoppers with dealers, automakers and other partners.
The company also engages with financing and auto ancillary companies to offer products
& services (auto financing, etc.) on the platforms. |
| BikeWale | Customers use BikeWale to buy or sell their two-wheeler. |
| Shriram Automall | Online and offline auction platform for used vehicles. |
| CarTrade Exchange | Online auction platform (used by Shriram Automall) and used vehicle ERP system. |
| Adroit Auto | Offers vehicle inspection and valuation services used by insurance companies, banks
and other financial institutions. |
| AutoBiz | Provides new car dealers a CRM solution to manage their customers in an efficient manner. |
CarWale and BikeWale, ranked #1 on relative online search popularity when compared to their key competitors over the period from April 2020 to March 2021.
How does Car Trade Tech make money?
Commission and fees from auction and remarketing services of used vehicles for retail customers, banks and other financial institutions, insurance companies, Original Equipment Manufacturers (OEMs; eg. Car makers such as Maruti, Honda, etc.), leasing companies, and fleet and individual operators.
Online advertising solutions on CarWale, CarTrade and BikeWale.
Lead generation, technology-based services and inspection & valuation services for OEMs, dealers, banks and other financial institutions and insurance companies.
Key Operational Metrics:
| Particulars | FY19 | FY20 | FY21 | Q1 FY22 |
| Average Monthly Unique Visitors (in Crs) | 1.93 | 2.05 | 2.57 | 2.71 |
| Average Monthly Unique Organic Visitors (in Crs) | 1.3 | 1.45 | 2.34 | 2.49 |
| % of Organic Unique Visitors | 64.67% | 66.65% | 88.44% | 88.14% |
| No. of Vehicles listed for auction | 709,190 | 809,428 | 814,316 | 212,552 |
| No. of Vehicles sold by auction | 199,529 | 197,986 | 156,689 | 30,133 |
Over the past three years, unique monthly visitor traffic grew by 15 percent CAGR to 2.57 crores. In the first quarter of this fiscal itself CarWale, CarTrade and BikeWale collectively had an average of 2.71 crore unique monthly visitors. Out of this traffic 88 percent in FY21 was organic i.e., not a single rupee was spent to divert the customers to the platform. This can also be evidenced by the marketing costs as a percent of revenues which has fallen to 4.68 percent in FY21 from 7.62 percent in FY19. Another metric which benefitted was customer acquisition costs which almost halved to Rs. 0.37 in FY21 from 0.74 in FY19.
Even the number of vehicles listed for auction have steadily risen by 7.15 percent CAGR. On the downside, the no. of vehicles sold through such auctions declined probably due to changes in emission standards and COVID-induced slowdown.
Financial Snapshot:
| (in Rs. Crore) | FY19 | FY20 | FY21 | 3 - year CAGR |
| Revenue | 243 | 298 | 250 | 1.43% |
| EBITDA | 53 | 60 | 71 | 15.74% |
| EBITDA Margin (%) | 20% | 19% | 25% | - |
| PAT | 26 | 31 | 101 | 97.09% |
| PAT Margin (%) | 11% | 11% | 41% | - |
| EPS | 4.31 | 5.65 | 22.06 | 126.23% |
| Net Worth | 1232 | 1262 | 1681 | 16.80% |
| ROE | 1.36% | 1.73% | 5.43% | - |
Revenue grew by 23 percent from FY19 and FY20 and contracted by 16 percent in FY21 due to COVID- related disruptions. However, during the same period, profitability saw an uptick. EBITDA margin gradually rose to 25 percent which can be partly attributed to lower customer acquisition costs and lower marketing costs as a percent of revenue which can be justified by the increasing number of organic visitors. Net Profit margin skyrocketed to 41 percent but it was on account of deferred tax credit worth Rs. 64 crores. The return on equity which stood at 5.43 percent is low but is rising consistently. Moreover, the company has no long-term borrowings on its balance sheet.
Elaborating on the Strengths:
Leading marketplace for automotive sales with a synergistic ecosystem.
Well positioned to benefit from the growth of the automotive sector and digitization.
Intention to monetize value-added services and untapped opportunities through strong customer base and technology platforms.
Profitable and Scalable Business Model. It is the only profitable player among its peers as per FY20 consolidated numbers.
However, the company does have a few risks:
Fall in purchasing power due to rising inflation, lack of availability of financing for customers, economic slowdown could adversely impact demand for their products.
Given that the company does not check publicly available registers for all vehicles, it can be difficult to detect stolen vehicles. This could lead to legal proceedings and depreciate brand value and customer confidence.
The industry is highly competitive and any further increase in competition could trigger higher customer acquisition costs typically associated with increasing number of competitors and resultantly lower margins.
Changes in laws, rules, regulations including those for Foreign Investment Laws may require CarTrade Tech to apply for additional approvals which is likely to drive up costs and burdens related to compliance.
Recommendation:
Since, the company does not have any listed Indian competitors, we compared it to a few listed international players.
| Companies | CarTrade Tech | Copart | CarMax | KAR Auction Services | AutoNation | Group 1 Automotive |
| P/E | 73.5x | 42.0x | 19.2x | 64.8x | 10.3x | 5.9x |
In terms of valuation, CarTrade Tech has a P/E of 73.5x on the basis of the upper price band and reported EPS of Rs. 22 per share. If we remove the portion attributable to a one-off deferred tax credit the EPS would’ve stood at Rs. 8 per share which would then give an extremely expensive P/E of 199x. Even in comparison to its international peers, the valuation seems exorbitant. Nevertheless, strong market sentiment and buoyant markets are likely to drive listing gains.
Thus, we advise investors to Subscribe to this IPO from a listing gains perspective only.
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